Johan Fourie's blog

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An Economic Freedom Day

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FreedomDayDoodleToday is Freedom Day in South Africa, the day we celebrate South Africa’s first general elections in 1994. It is a day that many South Africans remember vividly: long lines of patient people awaiting their chance to vote, many for the first time. A day of optimism and hope. For change. For a prosperous future.

But history doesn’t stand still. It’s nineteen years since that memorable day. And now, one generation later, it’s a day that South Africans will begin to reflect on the changes in our society since 27 April 1994. Were the aspirations and hopes of millions of South Africans met? Was it reasonable to expect that it could be? Have we, since achieving political freedom, also achieved economic freedom?

The consensus, both on the far left and the far right (if that distinction can be made in South Africa), seems to suggest that we haven’t. Populist politicians tend to point to the stark inequalities that permeate South African society. We are still an extremely unequal nation, yes, but the type of inequality has changed since 1994. As surveys suggest, between-group (black-white) inequality has fallen remarkably, which means that inequality within racial groups have increased. Here’s a startling fact that few people know: if all whites are removed from South Africa’s income distribution, the Gini-coefficient would be exactly the same. This is not to say that the average white South African is not more affluent than the average black South African: they certainly are. But we should remember that they continue to be a tiny minority, less than 10% of the population and declining as a proportion.  Inequality – globally and throughout history – is a symptom rather than the disease itself, and the best way to ‘cure’ it would be address the underlying cause: differences in the productive capacity of people. If we are to address inequality in South Africa, the large differences within the black population should be our greatest concern.

Others focus, instead, on poverty. The quip ‘ the rich are growing richer, and the poor, poorer’ is often employed  for dramatic purposes and is rhetorically appealing. It is also hogwash. Yes, the rich have grown richer, sometimes faster than the poor. But the South African poor is most definitely better off than they were on 27 April 1994. This we know from a variety of surveys and censuses, but its easier to just point to one invention that has remarkably changed the lives of the poorest of the poor: cellular phones. On 27 April 1994 no one in South Africa had ever seen a cell phone, today there are more cell phones than people in the country. To make a phone call in 1994 was a luxury for a lucky few, today it’s a basic human right. (And, oh yes, we have something called the internet today. And Google. In seven South African languages. Note: unregulated, unenforced.)

Others blame government policy: Solidarity, a predominantly white trade union, recently released a report in which they claim that “almost all South Africans, including black people, are poorer thanks to BEE” (page 5). The report, which was widely cited in the media, provides no evidence to support this claim. That is probably because it doesn’t exist. Firstly, all South Africans are not poorer. On average, South Africans are wealthier, much wealthier, than they were in 1994. In fact, our incomes are today approximately double what they were in 1994, which means we can buy double the amount of food, clothes and other luxuries than then. And this doesn’t account for the vast improvement in the quality of these goods, like cell phones and the internet. But I don’t think this is exactly what Solidarity implied. They claim that black economic empowerment makes black South Africans poorer compared to a counterfactual world of no BEE. I’ve voiced my concerns, too, with BEE, especially in the way it distorts incentives for black entrepreneurs, but even in the counterfactual no-BEE world there is no guarantee that South Africans would have been poorer. BEE is an attempt to address the inequalities of the past. Who is to say alternative attempts at redistribution would not have had a far worse impact on South Africans’ incomes?

We have not achieved economic freedom to the extent that all South Africans have an equal opportunity to prosper. But we have also not moved backwards, become poorer, or failed as The Economist would have us believe. Today, we suffer the anxieties of those that expected a radical transformation but found only a gradual improvement.

Written by Johan Fourie

April 27, 2013 at 09:42

One Response

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  1. Johan, I put this post in the same category as your one on the Land Act. To argue that rigorous research on the lack of improvement in income or employment prospects for the poor since 1994 is ‘hogwash’ is ridiculous. First, what has improved the lives of the poor is provision by government of housing, water, electricity, etc. not cellphones! To say “On average, South Africans are wealthier, much wealthier, than they were in 1994.” is dishonest because averages conceal differences between the poor and the rich. So overall this is either an ill-informed comment or deliberately selective. Either way, it really bothers me that you are effectively in charge of directing/managing economic history research in SA at the moment when you have this kind of attitude.

    ZAecon

    April 27, 2013 at 12:29


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